Oil Declines First Day in Four on Fuel Inventories, Budget Talks

Dec. 4 (Bloomberg) -- Oil dropped for the first time in four days in New York amid forecasts of rising U.S. fuel supplies and concern that a failure by lawmakers to agree on a budget plan may harm economic growth.

Futures declined as much as 1.2 percent. U.S. distillate inventories, which include heating oil and diesel, increased last week, and gasoline stockpiles rose to the highest level since August, according to a Bloomberg survey before an Energy Department report tomorrow. President Barack Obama and congressional leaders are trying to avert more than $600 billion in automatic tax increases and spending cuts, known collectively as the so-called fiscal cliff, starting January.

“An agreement between the two parties on the fiscal cliff is not near, and that’s what makes me cautious about believing in a great year-end rally for risky assets,” said Hannes Loacker, an analyst at Raiffeisen Bank International AG in Vienna, who predicts Brent crude will trade from $107 to $113 a barrel this year. “The current situation shows a rather weak demand side, and so crude should hover around present levels.”

Crude for January delivery fell as much as $1.09 to $88 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.13 at 1:19 p.m. London time. The contract climbed 18 cents yesterday to $89.09, the highest close since Nov. 19. Prices are down 10 percent this year.

Brent for January settlement on the London-based ICE Futures Europe exchange declined as much as $1.37, or 1.2 percent, to $109.55 a barrel. The European benchmark crude was at a premium of $21.61 to the New York-traded West Texas Intermediate grade. The spread was $21.83 yesterday, the narrowest since Nov. 2.

Bollinger Band

Oil in New York is snapping its longest rising streak in a month after futures reached technical resistance along the upper Bollinger Band, around $89.37 a barrel today, according to data compiled by Bloomberg. Futures halted advances from mid-July to mid-September near this indicator. Sell orders tend to be clustered close to chart-resistance levels.

U.S. House Speaker John Boehner and other Republican Party leaders proposed reducing entitlement-program costs by at least $900 billion, in part by raising the eligibility age for Medicare, and cutting $300 billion in discretionary spending, while seeking $800 billion in tax revenue in the next decade.

The proposal “does not meet the test of balance,” White House Communications Director Dan Pfeiffer said in a statement. “In fact, it actually promises to lower rates for the wealthy and sticks the middle class with the bill.”

Fuel Supplies

Jonathan Barratt, chief executive officer of Barratt’s Bulletin, a commodity newsletter in Sydney, expressed concern “that sentiment toward the U.S. recovery will start to wane as we move into more of a critical period for fiscal cliff.”

U.S. gasoline stockpiles probably rose 1.8 million barrels last week, according to the median estimate of eight analysts surveyed by Bloomberg before tomorrow’s Energy Department report. Distillate inventories, including heating oil and diesel, may have gained 750,000 barrels.

Crude supplies are forecast to have decreased for a third week, sliding 500,000 barrels, the survey showed. The refinery utilization rate probably increased 0.5 percentage points to an average 89.1 percent of capacity. That would mean plants operated at the fastest rate since the week ended Aug. 24.

“We always get that traditional draw leading into the northern hemisphere winter,” said Barratt. “It’s a little more seasonal at the moment rather than a trend” of declining supplies, he said.

The American Petroleum Institute in Washington will release separate inventory data today. The industry group collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.